4 Ways Trump Will Impact Restaurants

Published: January 20, 2017

Trying to determine the Trump impact on restaurants and foodservice is a difficult task. Will deportations (or that “big, beautiful wall” Trump promised) lead to higher food costs down the road? Will restaurant CEOs usher in an era of fewer regulations, all while climate change affects crop yields? A lot hangs in the balance and the short answer is that the future is unclear. But a look at where the new POTUS stands on a few key issues shows his policies will likely be a mixed bag for restaurant chains, workers, and consumers.

Labor

Federal minimum wage won’t go up any time soon.

Trump himself has wavered on increasing wages, at times saying he “would not” increase the federal minimum wage and, other times, saying he would be open to a $10-an-hour minimum. But he’s unlikely to put minimum wage high on his list of priorities. In fact, no Republican President has increased the minimum wage during his first year in office since the Fair Labor Standards Act was signed in 1938. And if his cabinet picks are any indication, the Fight for $15 protesters won’t have any allies in the White House.

Trump’s first pick for Labor Secretary, CKE Restaurants CEO Andy Puzder, is a vehement critic of minimum wage increases. In a 2016 op-ed for the Wall Street Journal, Puzder wrote that increased labor costs have forced restaurants to turn to technology: “If government-mandated labor-cost increases drive prices too high, the traditional full-service restaurant model… could well become a thing of the past.” Puzder, for one, welcomes our robot overlords, telling a reporter that machines are “always polite, they always upsell, they never take a vacation, they never show up late, there’s never a slip-and-fall or an age, sex or race discrimination case.” Puzder has since dropped out, though his sentiments are shared by a wide swath of the world’s largest fast-food companies, with both McDonald’s and Wendy’s in the process of introducing self-ordering kiosks to all of their restaurants in the U.S.

Even if the Trump administration doesn’t work to increase the federal minimum, change is still coming.

The same day Trump was elected, wage increases celebrated ballot victories in four states. All told, 19 states increased their minimum wage rates at the beginning of the new year. Change is occurring whether the Trump administration wants it or not.

Another policy that will affect millions of foodservice workers in the U.S. is overtime. The Labor Department’s overtime rule (now on hold) aims to double the salary threshold under which employees are guaranteed time-and-a-half pay. More than 6.5 million employees currently work full-time in the restaurant industry, most of whom would benefit from a the rule (provided they work overtime). Trump hasn’t come out strongly opposed to the rule, but does aim to exempt small businesses.

Will overtime and wages go up “bigly?” Probably not. But talk of automation, AI baristas, and fast-food kiosks won’t slow down. For restaurants, it’s about more than labor costs. The use of tech in the industry has become an evolutionary, survive-or-die response to political, economic, and social trends. Kiosks are taking pressure off of labor costs, sure, but they’re also increasing efficiency, sales, and improving the guest dining experience.

The seismic shift occurring in foodservice will take place regardless of Trump. Even if the government isn’t mandating something, doesn’t mean consumers won’t. The consumer relationship with restaurant technology has changed in recent years. Restaurants that don’t focus on tech (regardless of labor costs) will eventually be left behind in favor of those that do.

Immigration

Trump’s calls for a wall on the southern U.S. border helped get him elected, but have also gotten him in trouble. Shortly after his infamous Presidential campaign announcement speech (during which he made disparaging comments about Mexican immigrants), a handful of big-name chefs backed out of plans to open restaurants in the Trump International Hotel in Washington, D.C. But it isn’t just celebrity chefs who are concerned by Trump’s immigration policies.

Foodservice is disproportionately affected by closed borders and a strict deportation policy. According to a U.S. Department of Agriculture report, undocumented workers make up 67 percent of fruit harvesters and 61 percent of vegetable farm employees. The Pew Research Center estimates that 16 percent of those employed in agriculture and 11 percent of those employed in eating and drinking places are undocumented. A bulk of those workers would be caught in the net of the two to three million deportations Trump has promised “immediately” upon taking office. With an estimated 1.1 million illegal immigrants working in restaurants, the cost of switching to U.S.-born workers would total some $6.1 billion.

Farm labor could get a lot more expensive.

If Trump does enforce immediate deportations, farmers will be forced to hire significantly more expensive, legally-documented workers. Production would, therefore, go down and costs would likely increase. Not only would wholesale crop prices increase, but produce would be significantly more expensive for consumers, too. Some estimates indicate that stricter immigration policies could result to a five to six percent increase in grocery costs.

Though Trump insists his aim is to bring more jobs back to U.S. soil, his plan could backfire: there are limits to how high a wage a farmer can pay before he is forced out of business by someone who farms the same produce in a different country, at a lower price.

Trade

Regional producers might benefit from new trade deals.

Among economists,the biggest concern of a Trump presidency is a trade war. But a large share of his appeal came from promises to “bring American jobs back.” While on the campaign trail, Trump said he will scrap plans for U.S. participation in the Trans-Pacific Partnership (TPP) on his first day in office. Agriculture and agribusiness communities support the TPP, as they say it will help them be more competitive in the future. But not everyone is down with TPP. Critics argue it could crush small producers and rural farmers who haven’t been included in negotiations.

Fewer imports could be a good thing for certain regions of the country, of course. Approximately 90% of the shrimp and catfish Americans eat, for instance, is imported. Scrapping the TPP could lead to a stronger reliance on seafood from the Gulf but also begs the question: Can regional producers keep up with demand?

Fewer imports mean operators will have re-think certain menu items.

Also on Trump’s wish list is a renegotiation or termination of NAFTA, a landmark piece of legislation signed in 1994 that gave the U.S. greater access to products from neighboring markets. According to a 2015 report issued by the U.S. Department of Agriculture, NAFTA is largely credited with reshaping the American diet, helping propel popular Mexican ingredients (like avocados and seasonal fruits) into the culinary stars they’ve since become. Today, Americans consume twice as much fruit (three times as many vegetables) from both Mexico and Canada as they did two decades ago. Mexican avocado imports alone are today a nearly $1 billion-per-year business. Fast-casual chain Chipotle uses roughly 97,000 pounds of avocados each day. An elimination of NAFTA would mean far fewer avocado imports and that would affect more chains than just Chipotle.

For some producers, the termination of NAFTA would be a disaster. Beef producers who raise cattle in Mexico and slaughter in the U.S., for instance, would be forced to move (which would certainly affect the chains they supply to). And those who choose to absorb tariffs would likely pass those costs on to consumers. For restaurant operators, it’s become increasingly important to stay head of the curve, keeping up-to-date with any potential changes in trade deals.

Regulations

Fewer regulations might be good for operators, but not so great for food.

Historically, the Trump brand has been associated with glamour, glitz, and all things gourmet. But in recent months, the President-elect’s tastes have seemed pretty pedestrian: KFC with a knife and fork, Big Macs with a side of Diet Coke, and — who could forget? — a taco bowl at his desk in Trump Tower. His love of fast food, he says, comes down largely to food safety. “One bad hamburger, you can destroy McDonald’s. One bad hamburger, you take Wendy’s and all these other places and they’re out of business,” Trump told CNN’s Anderson Cooper. “I’m a very clean person… I think you’re better off going there than maybe someplace that you have no idea where the food’s coming from. It’s a certain standard.”

But the agency tasked with keeping Trump’s Big Macs and buckets of fried chicken buckets “clean” — the FDA — might face a significant hurdle in the coming four years. In atax plan unveiled in September, Trump called the FDA the “food police” and vowed to scale back food safety and environmental regulations in order to save $1 trillion over the next decade.

Crop yields could suffer as a result of fewer regulations.

Agriculture and fisheries are highly dependent on the climate, with warmer water temperatures shifting habitats of many fish. According to the EPA (an agency currently being sued by the very man Trump has appointed to run it), rising temperatures have already proved devastating for some crop yields. In 2012, for instance, high nighttime temperatures led to dismal corn yields across the U.S. Corn Belt, and premature budding due to a warm winter caused $220 million in losses of Michigan cherries.

In its 2014 annual report, Chipotle warned that increasing produce costs brought on by climate change could lead the chain to rid its menu of guacamole in the future. Scott Pruitt, Trump’s pick to head the EPA, isn’t convinced that climate change is even real. In fact, Pruitt has sued the EPA a number of times, mostly recently in an effort to strike down President Obama’s Clean Power Plan rules.

Allowing more oil-drilling in the U.S. would have a damaging effect on the Middle East.

Trump has offered hearty support for removing regulations that could hamper the oil industry. That might make for easier access to oil in the U.S., but it would keep prices suppressed in the Middle East. In turn, drilling in the U.S. could prove damaging to other economies in the process, keeping prices suppressed and weakening the demand for food away from home in the Middle East.

Restaurant operators often fail to take the time to understand their institutions’ issues and stakeholders. The same can be said for politicians. For now, the new President looks to be lining his cabinet with CEOs and business executives — people who should best understand the importance of goal-setting and a shared vision. The real test will be whether Mr. Trump can strike a balance between near-term and long-term impact.

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ABOUT AARON ALLEN & ASSOCIATES:

Aaron Allen & Associates is a leading global restaurant industry consultancy specializing in growth strategy, marketing, branding, commercial due diligence for emerging restaurant chains and prestigious private equity firms. Aaron has personally lead boots-on-the-ground assignments in 68 countries for clients ranging from startups to multinational companies posting in excess of $37 billion. Collectively, his clients around the globe generate over $100 billion annually and span six continents and more than 100 countries.